As Climate and Trade Become Intertwined, a Bipartisan Push for Carbon Tariffs is Emerging

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Last year, the U.S. enacted the Inflation Reduction Act (IRA)the most significant U.S. climate policy to datewithout support from a single Republican in Congress. Today, Republicans on Capitol Hill are championing what some hope will be the next significant climate legislation.

Over the past year, a mix of Republicans and Democrats has coalesced around a push to measure greenhouse gas emissions from certain products produced in the U.S. If all goes to plan, that data could underpin the creation of a tariff on imports of carbon-intensive goods from other countries. 

Supporters of the legislation have painted it as a win-win. It would incentivize manufacturers around the globe to decarbonize while also penalizing high-emitting geopolitical rivals like China and Russia. The only way that you’re going to be able to drive global decarbonization at the scale that science suggests is through a type of trade policy, says George David Banks, an energy and climate expert who served in the Trump Administration and on Capitol Hill and has been leading the push for a border carbon policy. 

The development is the latest indicator of a new dynamic emerging from the chaos of both a broken global trade system and an increasingly urgent climate challenge. The U.S. rattled nerves in Europe with the IRAs subsidies for domestic clean technology manufacturinga policy that was once a no-go because of its effects on international trade. Next month, the European Union will implement its own fee on high-carbon imports, a move once considered too politically disruptive to be feasible. Across the globe, friends and foes alike are complaining that this emerging climate-trade regime may hurt them.  

How this thorny dynamic plays out is far from settled. And, as in so many things in global affairs, what happens in the U.S. will ripple across the globe.  

For decades, the idea of linking climate and trade has been the subject of white papers and debate between policy wonks. The main advantage to such an approach was simple: trade policy provided a more practical route to push countries to take action on climate change than voluntary negotiations between countries. And, as some countries began to impose a fee for carbon pollution on their domestic industries, charging a similar fee for imports offered a way to level the playing field. But, despite the advantages, political leaders remained hesitant to propose anything that would disturb trade relationsand, by extension, the economy.  

The Trump presidency completely changed the dynamic. Trump broke with longstanding trade orthodoxy, wielding tariffs as a geopolitical weapon and blocking the World Trade Organization from settling disputes. In this fractured trade environment, the European Union proceeded with plans to levy the worlds first measure taxing carbon emissions at its border. 

Since taking office, Biden has employed a different tone toward allies than his predecessor, but he hasnt sought to restore old-school trade norms. The result is an environment in which climate and trade seem poised to be increasingly linked. The question is what does the new climate-trade regime look like? 

Supporters of carbon tariffs argue that the U.S. can work with allies to create a global club of like-minded countries that tax carbon at their borders. This would push other countriesparticularly emerging economies where emissions are rising rapidlyto decarbonize. But opponents worry such a policy is a road to messy geopoliticsnot least because some Republican supporters have painted it as much as a cudgel for punishing enemies as a tool for addressing climate change. In the Republican Party, we’re living in this America-first populism explosion, said Senator Kevin Cramer, a Republican from North Dakota, at a September event focused on such a carbon policy. This speaks to that. Big polluters also happen to be our adversaries, in the case of China.

At the core of the push for carbon tariffs is a convenient reality: industrial production in the U.S. is much cleaner than in the economies of geopolitical rivals, namely China and Russia. In 2020, the Climate Leadership Council, a group that advocates for conservative climate policies, released a report outlining what it called Americas carbon advantage, showing that on the whole U.S. manufacturing tends to be less emissions-intensive than that of its counterparts. (Even though the U.S. has lagged in climate policy, it has a relatively clean electric grid and decades of regulation targeting other pollutants have also reduced carbon emissions). 

A new report released Thursday from the Niskanen Center, a center-right think tank, and shared exclusively with TIME before publication, tells a slightly different picture. There is no debate that the U.S. is cleaner than Russia, China, or India. But Niskanen found the E.U., U.K., and Japan to be substantially cleaner. I think it’s a fair question to ask: are we really the best? says report author Shuting Pomerleau, deputy director of climate policy at the Niskanen Center.

Some on Capitol Hill want to answer that question before moving forward. A bill introduced in June known as the PROVE IT Act would mandate that the Department of Energy study the emissions intensity of U.S. industry. The results could then inform a future carbon tariffthough actually implementing such a policy would require additional legislation.   

There are other risks beyond how those numbers shake out. Experts debate whether a carbon tariff would survive scrutiny at the World Trade Organization. The E.U. is in better standing with WTO rules because the bloc requires industrial companies to pay a price on their carbon emissions.  This allows the E.U. to avoid allegations that it’s unfairly prioritizing its own companies over others. India also complicates the picture. The U.S. has sought to make India a key partner on the world stage, but the countrys industry is far more carbon intensive than in the U.S.

And some worry that an aggressive carbon tariff approach will just tie climate up in geopolitical conflicts, while helping bring back the futile trade wars of the 20th century. Its a roadblock to international collaboration, says Pomerleau. Retaliation is a big area of concern. 

These debates will inevitably take years to play out. But the signal in all the noise is a clear one: in our fraught geopolitical environment trade and climate are poised to be increasingly linked.

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